May 2: Letters on Dodd Frank’s impact on appraisals, Deutsche Bank lawsuit, funding new companies; reducing app to close timeline, and gifts to clients
“Rob, try telling a Millennial that, when all is said and done, their loan file is going to wind up being 4 inches thick, and take 45 days to process…especially after August 1. And we wonder why they, and everyone else, are fed up with obtaining a home loan especially when a lease rental agreement, or even car purchase documents, are less than 5 pages. I wonder if home ownership is shifting to those who love filling out paperwork and documenting $150 deposits from two years ago rather than those who are truly qualified. And try selling a 30-year mortgage to a 20-something who may have her eye on moving in a couple years – the CFPB had better re-evaluate their stance on ARM loans. Regulatory confusion and lenders running scared have made this a net negative for the same consumers regulators are supposed to be trying to protect.”
Forget about Ocwen being “New Co.” spelled backwards. Bart B. writes, “Even though I haven’t seen it in your column so far, I am sure someone else must have commented on what TRID spells backwards.” Nope, not until now.
On TRID Joe Adamaitis reported, “Rob we recently held a seminar on the new rules for August to a large group of Realtors here in Sarasota, FL. During the presentation an astute agent (don’t go there) brought to everyone’s attention two interesting and troubling sections on the Closing Disclosure. I believe on the next to last page you will see the CFPB’s sample shows a box (one of 3) checked which states ‘the lender will accept partial payments’. The last option states the lender does not participate but if the loan is sold the new servicer may have a different policy! Yikes! See: Partial Payments – Your lender ___ may accept payments that are less than the full amount due (partial payments) and apply them to your loan; ___ may hold them in a separate account until you pay the rest of the payment, and then apply the full payment to your loan; ___ does not accept any partial payments. If this loan is sold, your new lender may have a different policy. More importantly is the signature page. Under the signature line it states, ‘By signing this document you agree that you received a copy on time’. It then states, ‘YOU ARE NOT REQUIRED TO TAKE THIS LOAN.’ See: By signing, you are only confirming that you have received this form. You do not have to accept this loan because you have signed or received this form.” Thank you Joe.
Brian Hoskins, COO with Montana’s Mann Mortgage, sent, “I wanted to share with you a recent project I have been working on for the past two years which was recently published: “DODD-FRANK IMPACT ON MORTGAGE APPRAISAL PROCESS.” Thank you Brian!
A broker from the Atlantic Seaboard opined, “I’m no fan of HVCC. I view it as a fraud perpetrated upon the consumer to re-capitalize the larger institutions. For example, one Top 10 Direct to Consumer lender uses its own AMC – fine it’s still legal – but a few weeks ago they raised their appraisal fee. Then I uploaded a file and suddenly the appraisal fee is now $505. Hmmm. then today I noticed this on the website: ‘JUMBO Appraisal Review Fee. Going forward, loan amounts of less than $1M will incur a $150 Appraisal Review Fee. This with show on the Fee Worksheet of the Pricing Calculator so you will have full visibility, and is effective for all new Registrations March 6th, 2015 and beyond.’ Just so we are clear, the lender uses its own AMC, and affiliated business, but now it needs to charge and additional $150 for a review of its own appraisal management company?”
Will advances in automatic underwriting systems and IT replace human appraisals? “Rob, this teeth gnashing over appraisers is crazy. The number of appraisers that is needed should pleasantly decline with the aid of big data. Mathematicians and economists have worked on algorithms to appraise properties that obviate the need for appraisers. Yes, a few will still be needed because of outdated laws or because buyers do not trust robots but, like train engineers, airplane pilots, waitresses, travel agents and bank tellers, just a few should suffice. The argument that appraisers are needed in places near the ocean or national park, versus those close by with a view of a freeway or tannery, leading to values different by hundreds of thousands of dollars, is not valid. The data should tell you if there is a view or for that matter a tannery next door. And in time it will. This is a job that can be routinized, and thus has generally poor future prospects.”
(Along those lines from the Rocky Mountain State I received an update on Colorado appraisals which probably can be used for a comparison in other states. The cost of an appraisal is running about $450 with the appraiser receiving about $350, depending on distance, acreage, or uniqueness. Rush fees? There don’t appear to be any “rushes,” but anything desired in less than four days might make your wallet $100 lighter – everything else takes 10-15 business days or over 20 for a VA loan. And that is if you can find an appraiser – most are not accepting orders because they are too busy.)
Mortgage banking has become a legal lightning rod and this week saw arguments in ACE Securities Corp v. DB Structured Products. Skadden litigation partner Robert A. Fumerton wrote, “The Appellant had no answer for the most critical question raised by the Court – i.e., whether there was any example of a breach of a rep or warranty that could occur after closing. The reps or warranties were either true or false as of the date of closing and that is the date which should trigger the statute of limitations. The Court seemed persuaded that the policies of predictability and finality in commercial transactions favor affirming the Court’s long-standing precedent that claims for breaches of reps and warranties accrue as of the date they are made. If the parties had wanted to ensure protection for the life of the loans they could have drafted contractual language giving rise to a continuing obligation by DB to repurchase the loans. By emphasizing that the investors had no duty to perform due diligence on the loans at issue, the Appellant is essentially trying to import a “discovery rule” into the NY statute of limitations. In any breach of contract case, the parties understand that there is a risk that they will not discover any breach until more than six years after the date of contract.”
On the trend of start-ups in residential lending garnering unusually high amounts of investor cash to fund operations, Justin Wolterman of www.MortgageBite.com writes, “I just think that the venture capital market is suffering from some ‘irrational exuberance’ as many commentators have argued lately, but it is certainly a good thing for start-ups! As far as online Lender start-ups here is another article from the New York Times with very similar companies. I have been following all these companies to see how it plays out.
“Very interesting indeed but note most of these companies are not doing residential purchase mortgages, and I think they will be in for a shock when they try to tackle that market from a pure technology perspective. I think there is no doubt that the online mortgage application and subsequent process is here to stay but as you know all too well the purchase market is much different and much more challenging, and these startups may have some initial success with refi’s but it will get much harder after that. Not to mention the fact that they all mention ‘expanding’ into other states but may not understand all of the regulatory requirements and costs associated with being licensed in each state (not to mention the headaches!)
“Since MortgageBite is not a lender, we don’t feel threatened by these companies, and I will enjoy watching the innovation take place. I think that is why MortgageBite’s concept is interesting because we are not trying to ‘disrupt’ the mortgage industry, but simply capture what is already there, i.e. a highly networked set of professionals (Realtors, LO’s, Home Builders etc.) working together to help borrowers get a home.”
One reader asked, “Loan volume has been great but we can’t seem to reduce our time from application to clear to close, the loan officers express concerns that loans are not submitted to underwriting timely yet the processors complain that the loan officers never turn in complete loan applications, any suggestions?”
I am not a manufacturing expert, so I asked Buddy Kittle (Banker’s Mortgage Consulting, LLC.) who answered, “With increased regulatory cost it is necessary to implement a true mortgage manufacturing process with quality checks to increase efficiencies and profitability. First complete an in depth review of each employee to evaluate their depth of knowledge, then develop a true IEP, Individual Education Plan to improve the quality of your team. Next, score your MLOs and processors, implement a LORC, Loan Officer Report Card that reviews the quality of the application they submit, they must turn in complete applications and all supporting documentation timely. Additionally, have report cards that score the processor, these can measure time from receipt of file to submission, number of submissions and conditions etc. There is much more than this simple answer that must be done but this will give you the first steps to success. People don’t improve until they are measured!”
The CFPB has come out firmly against “kickbacks.” One reader asked, “What is the CFPB’S stance on closing gifts to clients?” Donna Beinfeld replied, “Gift: This is part of RESPA, and would be considered a kick back. You cannot gift anything of value, to a client, or a referral source. If you meant ‘a lender credit at the time the loan closes,’ there are two important parts of this equation. #1: The loan originator’s compensation does not change (does not become lower). #2: The credit is from the company and not from the originator. The CFPB does not permit lowering of fees or credits from the actual originator, unless it was an undisclosed fee, an increase that could not have been avoided, and there is extreme hardship to the consumer.” Thank you Donna!
Recently the commentary discussed how loans from certain lenders have gained a reputation for paying off more quickly than others, and therefore seeing a discount in the secondary markets. That prompted this note. “I disagree with the assertion that lenders whose bonds run faster than average are ‘costing the MBS market several hundred million dollars a year.’ Would one say that slow lenders are ‘saving the MBS market $X a year?’ The origination market has changed dramatically since the financial crash. Brokers were once 40% of the market. They now account for less than 10%. In the past, when rates fell, those brokers were like ants swarming on a picnic. It was easy for brokers to enter the market and provide capacity for borrowers looking to take advantage of falling rates.
“Today, regulation, licensing and increased capital requirements have put a significant moat around the origination business. It is no longer a business that is easy to enter. When rates fall, most lenders aren’t able to scale quickly. Their turn times widen from 45 days to 75 days or more. However, some of the lenders that you mentioned do have models that scale – and scale very quickly. Relative to lenders with older, more traditional models, they are able to refinance more borrowers – and that does mean their bonds run faster than the mean. It also means they pick up share – which is evident when viewing industry volume tables each quarter. So yes, MBS prices would be somewhat higher if only non-scalable originators made up the majority of the market. But the real ‘cost’ to the slow lenders and the borrowers they serve comes from the friction and moribund nature of their antiquated platforms.”
A Methodist preacher said, “Anyone with ‘special needs’ who wants to be prayed over, please come forward to the front by the altar.” With that, Franklin got in line and when it was his turn, the Preacher asked, “Franklin, what do you want me to pray about for you?” Franklin replied, “Preacher, I need you to pray for help with my hearing.” The preacher put one finger of one hand in Franklin ‘s ear, placed his other hand on top of Franklin’s head, and then prayed and prayed and prayed. He prayed a “blue streak” for Franklin, and the whole congregation joined in with great enthusiasm.
After a few minutes, the preacher removed his hands, stood back and asked, “Franklin, how is your hearing now?” Franklin answered, “I don’t know. It ain’t ’til next week.
(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)